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AP Economics > Chapter 3 GDP Inflation Unemployment CPI > Flashcards

Chapter 3 GDP Inflation Unemployment CPI Flashcards

0
Q

Define macroeconomics

A

Collective actions of entire economy measures movements and output him prices for whole economy domestic and global

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1
Q

What is microeconomics

A

Individual decision-making utility supply and demand

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2
Q

What are the three goals of economic policy

A

Maximize economic output and promote production of goods
Minimize the number of people who cannot work
Maintain stable prices

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3
Q

Who is responsible for meeting the three economic policy goals

A

The government from the government employment act of 1946

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4
Q

How can we meet the three economic policy goals

A

By aggregation

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5
Q

What is aggregation

A

The process of putting small numbers into larger statistical measure to track large-scale movements

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6
Q

In the circular flow what does the money flows rely on

A

Wages rent interest profits

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7
Q

What does the product flows rely on

A

Land labor capital entrepreneurship

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8
Q

Briefly describe the circular flow

A

Your output is someone else’s income

Business owners are dependent on customers and vice versa

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9
Q

What are the big three

A

Gross domestic product
Unemployment rate
Consumer price index

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10
Q

Define gross domestic product

A

Measures overall output and the economy in dollars

tells us how much stuff we are making

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11
Q

Define unemployment rate

A

Tells us how many people that want to work and can’t find jobs

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12
Q

Define consumer price index

A

Tells how much overall prices are rising or falling in the economy

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13
Q

What do the big three measure

A

Economic performance

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14
Q

Went to the big three help us do

A

Understand problems that face modern economics
Understand how we measure performance
Gives us direction to what is happening

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15
Q

What does the national income accounting GDP help us do

A

See the standard of living

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16
Q

What is GDP

A

Total value of all final goods and services produced within our domestic border within a given year
Do not double count

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17
Q

What counts in GDP

A

Final goods and services which are only the goods at retail locations
This make sure all value added is accounted for

Goods and services within our domestic borders

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18
Q

What doesn’t count for GDP

A

Financial transactions

Used goods because they were already counted for in earlier years

Black markets because GDP only counts legitimate transactions

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19
Q

What percent of the economy is black-market part

A

15% of the economy

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20
Q

How do we measure GDP

A

The income method

The expenditures method

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21
Q

What is the purpose of the expenditures method

A

Capture all spending done in the economy at retail

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22
Q

What are the four categories of the expenditures method

A

Consumption
Investment
Government
Net exports

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23
Q

Define consumption

A

Spending on stuff
Because category
70% of economic activity

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24
Q

Define investment

A

Spending by business on capital goods

Most volatile changes most frequently

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25
Q

What should you keep in mind for investment

A

People buying new houses counts as investment

Business building inventories Count as well

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26
Q

Explain the government part of the expenditures method

A

Spending on final goods and services by the government
Not welfare
20% of economy

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27
Q

Expenditures method net exports

A

Exports added to GDP
Imports subtracted from GDP
-5% of economy
We import more than we export

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28
Q

What is the equation for the expenditures method to calculate GDP

A

C + I + G + ( X - M ) = GDP

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29
Q

What is the income method to calculate GDP

A

Tracks the income generated

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30
Q

Are the parts income

A 
Wages and salaries
Rent
Interest
Proprietor income
Corporate profits
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31
Q

What is the overall goal for GDP

A

Only Count economic activity once

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32
Q

What are the problems of GDP measuring the social well-being

A 
Industrial pollution
Natural disasters and environmental cleanup
Leisure time
Black-market
Household production and activity
33
Q

Explain industrial pollution GDP problem

A

Doesn’t count degradation of environment
Social well-being worse due to pollution
Need green GDP which nets out pollution costs

34
Q

Explain the natural disasters and environmental cleanup GDP problem

A

Cost a lot to clean up
GDP actually grows
So GDP says we’re better off but we are not

35
Q

Explain leisure time problem of GDP

A

Well-being is enhanced by leisure time
GDP does not count this
GDP wants us to work more

36
Q

Explain the black market GDP problem

A

GDP does not count the economic activity in black markets

Misses utility created by these activities

37
Q

Explain the household production and activity GDP problem

A

A lot of economic activity goes on in the household

GDP it does not take this into account

38
Q

Is there a perfect measure for our well-being

A

No

39
Q

Give an insight to unemployment

A

Unemployment workers means unemployed capital

This causes hardship for people who cannot find work

40
Q

People with jobs

A

Employed

41
Q

People without jobs looking for jobs and are available to work

A

Unemployed

42
Q

People not in the labor force you do not count towards unemployment statistics

A

People you neither employed nor unemployed

43
Q

What are the types of unemployment

A

Seasonal
Frictional
Structural
Cyclical

44
Q

Seasonal unemployment

A

People not employed due to seasonal nature of work

45
Q

Frictional unemployment

A

People between jobs while looking for another

Shortest type

46
Q

Structural unemployment

A

People who lose work because their skills are not needed in current economy
Longest type

47
Q

Cyclical unemployment

A

People lose jobs due to economic downturn such as a recession
Totally out of the workers control

48
Q

What type of unemployment do we care about

A

Cyclical and structural

49
Q

What happens to unemployment as GDP decreases

A

Unemployment increases

50
Q

what are the problems with unemployment

A

Discouraged workers and underemployed

51
Q

Discouraged workers

A

People that have given up looking for work and are out of the labor force
This makes unemployment rate seem lower than it actually is

52
Q

Under employed

A

Workers working fewer hours then they would like and would work more if they could

Hey count as employed thus skewing unemployment rate

53
Q

How do we make unemployment more accurate

A

Factor in the discouraged workers and underemployed groups

54
Q

How do we solve unemployment

A

Increase economic activity in some way or fashion
Provide people with temporary benefits
Use job-training programs and unemployment agencies to retrain people for work or match them with jobs in the area

55
Q

Define inflation

A

A sustained increase in the price level overtime

56
Q

What is inflation and what does it create

A

Inflation is unexpected and creates arbitrary

57
Q

Who Sri the winners for inflation

A

The borrowers

58
Q

Who are the losers for inflation

A

Lenders
Savers
Fixed income folks

59
Q

Happens to purchasing power as inflation is increased

A

Purchasing power decreases

60
Q

What happens because most inflation is expected

A

People receive regular wage raises these offset the losses in purchasing power
Thanks adjust interest rates to avoid inflationary losses

61
Q

What interest rate includes inflation

A

Nominal interest this always changes

62
Q

What rate stays the same and does not include inflation

A

Real interest rate

63
Q

What is the goal to measuring inflation

A

Accurately measure overall prices

64
Q

The CPI stand for

A

Consumer price index

65
Q

What are the two tips for measuring inflation

A

Use a diverse weighted market basket of goods and services

Use a base year of prices as a reference point of comparison

66
Q

What does it mean by diverse and weighted

A

Diverse means different good types

Weighted means match goods to proper proportions ex. Age groups

67
Q

What does the consumer price index do

A

Takes a set of complicated Numbers and turns them into a single understandable number

68
Q

What must nominal GDP always do for real GDP to grow

A

Nominal GDP must grow faster than inflation

69
Q

What should always be taken into account when analyzing the growth of the economy

A

Inflation

70
Q

What are the four parts of the business cycle

A

Trough
Expansion
Peak
Recession

71
Q

Trough

A

Low point of economic activity in a cycle

72
Q

Expansion

A

GDP growing
CPI rising
Unemployment falling

73
Q

Peak

A

Height of economic activity just before a recession

74
Q

Recession

A

GDP shrinking CPI falling unemployment rising

75
Q

How long must GDP shrink for it to be considered a recession

A

Six months at least

76
Q

What are most recessions cost by

A

Falling investment

77
Q

What is the good number for GDP

A

3-5% growth

78
Q

What is the good numbers for unemployment

A

5 to 6%

79
Q

What is unemployment always

A

Sectional and structural unemployment

80
Q

What are the good numbers for CPI

A

2 to 3%

81
Q

What can excessive GDP growth tigger and why

A

Inflation and because scarcity is more acute

AP Economics (8 decks)

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